New World Invesment Research

FED Funds Futures now imply zero cuts in 2026 and only one cut in 2027 as late as June amid inflation concerns. 10-year yield futures are already trading well above 4.2.

As I’ve been reiterating before a number of times, the lagged effects of tariffs with uncertainty related to them, reduced migration, an expansionary fiscal policy stance, and tight credit spreads are exerting pressure on the US inflation rate to remain significantly above the 2% target. Moreover, there is still no data or evidence in the present time and in historical perspective to conclude that AI will be as disruptive and as beneficial for productivity as the market and SOFR pricing (pre-Iran conflict) suggest. While rotation between workers and AI-driven machinery/capital will take place in some industries, AI will likely be a ‘helper’ tool rather than a ‘replacer of labour.‘

The adoption of AI will take much more time than currently implied by the market. The St. Louis Fed’s Real Time Population Survey tracks AI adoption, but the standard framing (a binary yes/no on AI use) misses what actually matters for the displacement debate. The more relevant question is intensity: how frequently are workers relying on AI on the job? A subset of the survey data breaks usage down by frequency, and this is where the displacement thesis gets tested. If AI were a genuine near-term threat to labor, you’d expect daily work-use figures to be inflecting sharply upward, but … they aren’t! The data is remarkably stable, and the daily-use cohort remains a thin slice at the bottom of the distribution – offering little empirical support for imminent displacement.

The spike in oil prices is definitely the last nail in the coffin of US inflation and the macroeconomy in general. The question here is the persistency of this price elevation and how long the overall uncertainty with energy supply chains will remain. My view is that higher oil and gas prices will stay with markets for a while until September of this year; however, this might easily be prolonged should the conflict in ME escalate further.

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Data References: FED, Citadel, CME